Investment Strategies with Aileron

A: Reasonable regulations are necessary and provide consumers with layers of consumer protection. However, every regulation can be an expense, and that extra cost is added to the price of every product or service being regulated. We pay for every regulation: so common sense is (or should be) part of the decision process whenever the government imposes regulations.

If an American industry becomes too heavily regulated and their foreign competitors are much less regulated, the American firms may be put at a distinct price disadvantage because of extra expenses. Monitoring regulatory expense is one of many items to consider when assessing investment options.

The Wall Street Journal reported that as of 2005, Federal regulations cost the U.S. economy over $1 trillion a year, or about $8,000 for every household. That is a trillion dollars not spent on products or services, or creating the jobs necessary to produce those products or provide those services. Converted to time, the government estimates that Americans and their businesses spend over 10 billion hours a year just to fillout government forms.

Other industries are perhaps underregulated and are also needlessly expensive. For example, The Wall Street Journal reported that America’s lightly regulated legal industry costs nearly $1 trillion a year – a “tort tax” of $9,827 for a family of four – every year. That is great for lawyers but not so good for everyone else. In Europe, many countries limit the legal burden by requiring the losing party to pay all costs. Those regulations have significantly lowered the number of lawsuits.

Regulations are necessary but, extensive, expensive, and on the rise. A conversation with your advisor about how regulations may impact your investments may be time well spent.

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